Generally, commodities are generic, largely unprocessed, goods that can be processed and resold. Commodities that are traded in commodity exchanges for immediate or future delivery include fuels, foodstuffs, and metals. For instance, light, sweet crude oil is traded on the New York Mercantile Exchange (NYMEX). Similarly, foodstuffs can be traded on the Chicago Board of Trade (CBOT) and metals can be traded on the New York Exchange and the London Metal Exchange. Many other commodity exchanges, both domestic and foreign, are available.
Investors, including retail investors, who desire exposure to fluctuations in commodity prices have been traditionally constrained to one of several unsatisfactory options. In particular, exposure to commodities can be difficult for smaller investors because commodities are generally traded in very large quantities, thereby requiring large capital and/or margin requirements. Further, investors may not want to take the delivery of the commodities themselves due to the need to store and secure the commodities.
In view of the constraints described above, investors have traditionally purchased securities (e.g., stocks) of companies that are associated with the commodities. Likewise, investors may purchase shares of mutual funds that invest in a variety of securities of the above-described companies. However, the prices of these securities are oftentimes affected by many more factors than the price of the underlying commodities themselves. In recent years, corporate fraud has bilked investors out of millions, if not billions, of dollars. Likewise, poor management can reduce the value of a company even while the price of the underlying commodity may be rising. Moreover, in the case of mutual fund shares, investors do not have the full liquidity of individual securities since redemptions are typically performed at the close of a trading day once the mutual fund's Net Asset Value (NAV) has been determined.
Accordingly, there is a need in the industry for units tradable on a stock market exchange, where the units provide a more direct exposure to the price fluctuations of an underlying commodity such as oil.